Retirement Plan Review - Is it sound?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Ralph28
Posts: 4
Joined: Wed Jun 09, 2021 10:44 am

Retirement Plan Review - Is it sound?

Post by Ralph28 »

All, this is my first post. I am new to the forum but have found it extremely helpful. I think my plan is a sound one but I do not have anyone else in my life to run this by. I am hoping the community can validate my plan, confirm I have enough money, and suggest any areas of weakness/ improvement. If you need additional information please let me know! Thank you in advance.

Basics:

Married couple, no children, no desire to leave a legacy
No living parents, brothers or sisters.
Me 51, Wife 53
Live in HCOL city in the Northeast
Expected life expectancy of 95 each.

Current Net Worth: $6,630,000

Primary Residence worth $750,000, mortgage balance of $261,000.   30 year fixed at 2.5%
(1) Rental Property worth $510,000 no mortgage.  Currently nets us $1,000 a month in income after all maintenance, fees, taxes, etc.

Cash: $1,000,000 - located in several online savings accounts, a CD, and checking. Yields about .5% across the board

Pre-tax Assets:

401k: $1,528,000 (Spread across (3) very low cost Fidelity Total Market Index funds for the U.S. and International plus a Total Market U.S. Bond Index Fund)

Rollover IRA: 93k (VTIAX)
Traditional IRA: 419k (Mixture of VTSAX, VTIAX, VBTLX)
Inherited IRA: 70k must be taken out by 2030 (VTIAX)
Simple IRA: 485k split between a Schwab S&P 500 Index Fund and Schwab Internation Index Funds

After Tax Assets:

Roth IRA: $166,000 (VTIAX and VGSLX)
Brokerage: $1,473,000 - This is spread across 5 or 6 actively managed funds at T.Rowe Price that have large capital gains so I am reluctant to sell and move to Index funds. About 150k of this total is in VTSAX and VTIAX.

Individual Stocks: $345,000 in 20 large cap stocks.  I have not bought an individual stock in 12 years. Large capital gains here so reluctant to sell 

Social Security Estimates:

Plan is for both to take at 70.  If so, here is what is projected by SSA discounted by 25%.   (I am being conservative and assuming we may get get our benefit reduced by 25%)
Me $30,000
Wife: $25,000

Jobs:

Me: I make $150,000 a year for a tiny company (less than 25 employees). My employment is fairly tenuous (one of the reasons I have so much cash) My ability to get another job (anywhere near my current salary) is highly unlikely. My network and skills have eroded over the course of the last 5 years.   In all honesty, my ambition to find another job is extremely low.  My plan is to ride it out as long as I can and hope the company survives.    

Her: My wife owns a small service business and makes $100,000.   The lease on her business expires in August, 2022.  We have already decided that she will exit that business then. She is burned out. There is a small chance we could sell the business before then, but we are assuming that we will not be able to.  

Here is our plan and other relevant information:

Plan to retire in August, 2022 when we are 52 and 54 respectively.
Do nothing until Spring 2033 and sell our primary residence.
Travel for two years abroad and across the U.S. starting in 2023. Use short term rentals to explore areas in U.S we may want to retire.
After two years pick a lower cost of living town and settle down. Might buy, might rent. Not sure.
After we settle down try to get easy, part time jobs to keep us busy.
Estimating $132,000 annual spending. Includes ACA fees for healthcare until we are 65 and everything else we can think of
No long term care insurance
Plan to keep the rental property. It is low maintenance and I have a long term tenant.

Questions/Comments:

I think we have enough money to live the rest of our lives without working? Is this true?
I am estimating $1,500 a month for ACA costs. Is this realistic?
Current Asset Allocation: 60% stock, 20% bonds, 20% cash. Is this reasonable?
In 2033, when we have no W-2 income should I convert Traditional IRA to Roth?
Should I realize capital gains in my T.Rowe Price funds starting in 2033? I would like to move that money to Vanguard.




Thank you again for your consideration!
Bronko
Posts: 200
Joined: Mon Dec 03, 2018 4:17 pm
Location: No matter where you go, there you are.....

Re: Retirement Plan Review - Is it sound?

Post by Bronko »

Net worth over 6 million with yearly expenses under 140K...

Just retire.

Firecalc.com if you need more assurance.
Never let a little bit of money get in the way of a real good time.
sycamore
Posts: 2301
Joined: Tue May 08, 2018 12:06 pm

Re: Retirement Plan Review - Is it sound?

Post by sycamore »

Welcome to the forum Ralph28!
Ralph28 wrote: Thu Jun 10, 2021 10:27 am Here is our plan and other relevant information:

Plan to retire in August, 2022 when we are 52 and 54 respectively.
Do nothing until Spring 2033 and sell our primary residence.
Travel for two years abroad and across the U.S. starting in 2023. Use short term rentals to explore areas in U.S we may want to retire.
After two years pick a lower cost of living town and settle down. Might buy, might rent. Not sure.
After we settle down try to get easy, part time jobs to keep us busy.
Estimating $132,000 annual spending. Includes ACA fees for healthcare until we are 65 and everything else we can think of
No long term care insurance
Plan to keep the rental property. It is low maintenance and I have a long term tenant.

Questions/Comments:

I think we have enough money to live the rest of our lives without working? Is this true?
I am estimating $1,500 a month for ACA costs. Is this realistic?
Current Asset Allocation: 60% stock, 20% bonds, 20% cash. Is this reasonable?
In 2033, when we have no W-2 income should I convert Traditional IRA to Roth?
Should I realize capital gains in my T.Rowe Price funds starting in 2033? I would like to move that money to Vanguard.
1. Yes, your financial assets are large enough and your expenses low enough that you're in good shape.

2. For ACA costs, it's hard to estimate this far in advance especially if you'll be moving around. Go to http://kff.org/interactive/subsidy-calculator/ and see what it would cost in various places given your ages, state/zip code, estimated income, etc. 2021 and 2022 are special year in terms of subsidies (no more "cliff" where you lose all subsidies) but they'll return in 2023. I suspect you won't be eligible for much if any ACA premium tax credit.

3. There's much discussion on Bogleheads about how to best determine asset allocation. One way is to factor in your Ability, willingness, and need to take risk.
- you don't need to take a lot of risk because you've accumulated a large enough nest egg. You do need to take some risk to let your portfolio keep up with inflation, be diversified, etc.
- your ability to take risk not so high because of the job situation. But if you had to, would you be willing to keep working, even at a lesser paying job? If so, you still have ability to take risk.
- your willingness to take is a personal decision. How did you react to the markets during the 2007-2009 crisis, December 2018 drop, March 2020 crash? If you stuck with your stocks and didn't panic sell, you score well on the willingness aspect as well.

There's no perfect way to translate those factors into a numerical AA but at least you thinking about the factors now prepares you for the future. Anywhere from 50/50 to 80/30 sounds reasonable to me. Your 20% in cash seems high. Maybe keep a couple years of spending needs in cash (guessing 3 or 4% of your stock & bond investments)

4. and 5. You say "In 2033, when we have no W-2 income..." I think you meant 2023?
To answer these questions, you'll want to model what your expenses and taxes will be like under a variety of conditions: doing a Roth conversion (and how much), selling a house (how much cap gain after $500k exclusion?), withdrawing from Trad IRA/401k for spending, selling unwanted investments in taxable (TRP funds or individual stocks), claiming SS, etc. There are a lot of moving pieces so you'll likely need to build a custom spreadsheet for it. That may become a good project for you when you retire ;)

There are some modeling tools like i-ORP and Retiree Portfolio Model that Bogleheads like to use. Might be worth a try.
Topic Author
Ralph28
Posts: 4
Joined: Wed Jun 09, 2021 10:44 am

Re: Retirement Plan Review - Is it sound?

Post by Ralph28 »

Thank you Bronko. I will check out Firecalc. I have seen it mentioned on the Forum, but never used it.

Thank you Sycamore. I'll explore the links you shared. I did mean no W2 income in 2023 not 2033. With respect to risk, I dollar cost averaged my way through the great financial crisis and the quick Covid crash last year. It was easier in 2008 because I was younger. It was a bit more uncomfortable last year. That is one of the reasons I am keeping more than 2 or 3 years cash. It reduces any temptation to sell equities and helps me sleep at night. Thank you again!
Boatguy
Posts: 96
Joined: Fri Apr 19, 2019 7:54 pm

Re: Retirement Plan Review - Is it sound?

Post by Boatguy »

You’re still a way’s off, but I’d suggest that you take a look at opensocialsecurity.com to help determine the optimal ages at which to take social security. It’s rarely recommended that both spouses wait until 70, which is your stated plan!
firetexan
Posts: 5
Joined: Sat Mar 24, 2018 12:07 pm

Re: Retirement Plan Review - Is it sound?

Post by firetexan »

OP,

Yes, you are set. Congratulations and enjoy your retirement. You earned it!

Suggestions:
1. Reserve $25-30K/year for health insurance + out of pocket, for two people, which you can afford it. No issue there.
2. 20% in cash is high. I would leave rolling 3 years of expenses in cash (say, $450K), rest of the cash invest back in the market. If you like vanguard, buy vanguard funds.

:sharebeer
firetexan
Sam_78
Posts: 60
Joined: Tue Oct 27, 2020 7:04 pm
Location: Sonoran Desert Biome

Re: Retirement Plan Review - Is it sound?

Post by Sam_78 »

Check out the retirement planner on personal capital. You can input your plan including changing expenses when you move to LCOLA. I am expecting you will have a ridiculous amount of money by 95 unless you start spending.

Another option is a fee only financial planner who can map this all out for you to give you a 2nd opinion.
gonefishing01
Posts: 253
Joined: Wed Aug 19, 2015 9:09 pm

Re: Retirement Plan Review - Is it sound?

Post by gonefishing01 »

Well done! If it makes you feel better- those are about the numbers I am planning to retire at with a family of 5, probably at or before the same age. Healthcare is the biggest wild card, but your plan looks exceedingly secure for two people. Congrats, and enjoy!
Topic Author
Ralph28
Posts: 4
Joined: Wed Jun 09, 2021 10:44 am

Re: Retirement Plan Review - Is it sound?

Post by Ralph28 »

Thank you all for your comments. It is reassuring to here from third parties that we are good shape. I'll take the advice and budget 25-35k for healthcare and look to reduce my cash holding. I thought it might be getting too large.

I am curious Gonefishin01, since we are roughly the same in age/assets what asset allocation will you have when you enter retirement?
HomeStretch
Posts: 6383
Joined: Thu Dec 27, 2018 3:06 pm

Re: Retirement Plan Review - Is it sound?

Post by HomeStretch »

Ralph28 wrote: Sat Jun 12, 2021 6:47 am … I'll take the advice and budget 25-35k for healthcare and look to reduce my cash holding. …
Try the KFF calculator for ACA costs/subsidies recommended by sycamore to get a sense of ACA premiums/deductibles and subsidies available at various income levels. The high deductibles can add a lot to the annual out-of-pocket cost if you use the coverage regularly for specialists, etc. In my HCOL area, the annual premium for a silver plan for two is ~$30k with $8k annual deductible. Be sure to understand how your plan coverage works for international travel and U.S. travel outside your geographical area.

With $1.5 million cash/Roth IRA/individual stocks + the proceeds from the sale of your primary residence, there may be an opportunity for you to manage your taxable income for one/some/all of your ACA years in order to qualify for a significant subsidy. If you are planning to do Roth conversions, you may have to choose between the two before age 65 or defer Roth conversions until age 65+.

If you haven’t already, turn off dividend reinvestment for the individual stocks to avoid buying more.

Prior to retirement, work on simplifying your portfolio and reducing the number of brokerages/accounts. Consider automating what you can (bill pay, account transfers, etc.). Travel (especially outside of the U.S.) may make it more difficult to access/manage your accounts.
gonefishing01
Posts: 253
Joined: Wed Aug 19, 2015 9:09 pm

Re: Retirement Plan Review - Is it sound?

Post by gonefishing01 »

Ralph28 wrote: Sat Jun 12, 2021 6:47 am I am curious Gonefishin01, since we are roughly the same in age/assets what asset allocation will you have when you enter retirement?
Oh, I’m not there yet and still in my early 40’s. But your numbers are around my target for early retirement. Hope to make it there in the next few years with business equity, but I’ve diversified enough into my index portfolio at this point that I should get there in my early 50’s even if the business doesn’t play out. I’m 70/30 and plan to remain that way into retirement for time being.
stocknoob4111
Posts: 2017
Joined: Sun Jan 07, 2018 12:52 pm

Re: Retirement Plan Review - Is it sound?

Post by stocknoob4111 »

Ralph28 wrote: Thu Jun 10, 2021 10:27 amconfirm I have enough money
do you have enough? With a $7M net worth?? Seriously? LOL!

Congrats on your net worth, I think it should be obvious that you have more than enough.
bogleforlife2020
Posts: 7
Joined: Fri Nov 20, 2020 9:40 pm

Re: Retirement Plan Review - Is it sound?

Post by bogleforlife2020 »

Nicely done -- you are definitely there. Also, just curious, have you always had approx $250k in combined salaries - wondering how you amassed such a high networth?
Exchme
Posts: 470
Joined: Sun Sep 06, 2020 3:00 pm

Re: Retirement Plan Review - Is it sound?

Post by Exchme »

Sounds like both you and the wife are burned out. The usual metric for al long retirement is to have 30X your annual expenses in investments. Here, if we value your rental by subtracting it's income from your expenses, you need $120K/year from stocks/bonds cash. I got tired adding up all the money, 5.7MM, so 48X. Congratulations, you are more than OK!

You are likely to have "problems" later in life with estate planning, tax minimization, Roth conversion planning and figuring out who to bequest your likely substantial estate to someday.
TRC
Posts: 1938
Joined: Sat Dec 20, 2008 5:38 pm

Re: Retirement Plan Review - Is it sound?

Post by TRC »

Is the rental property worth the hassle?

At a value of $510K investment yielding $12,000 a year, you're getting a 2.35% annual return....less than inflation.

I'd consider selling it, paying off your mortgage and investing the rest in your taxable account.
Topic Author
Ralph28
Posts: 4
Joined: Wed Jun 09, 2021 10:44 am

Re: Retirement Plan Review - Is it sound?

Post by Ralph28 »

Thank you all again for the additional comments. With respect to your question bogleforlife2020, our salaries were higher (closer to 350k combined) for a period of 12-15 years. The reduction is due to my wife's business declining a bit and I took a pay cut a couple of years ago. I have made a good to decent salary since the early 1990's, so eventually after 30 years the savings grew.

I had not really thought about selling the investment property, but in looking at its yield, it may be time to rethink that. Especially if we are traveling over the course of several years, I would not be able to show it if I have an unexpected vacancy.
Post Reply